Currency chaos: Who is to blame?

Mthuli Ncube


“When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”

These are the words of literary fiction’s arguably greatest detective, Sherlock Holmes, a character created by the British 19th century author, Sir Arthur Doyle.

The statement refers to the idea that after considering all the facts of a problem presented, whatever you are left with is the truth, no matter how unlikely.

In recent weeks, both Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe (RBZ) governor John Mangudya have been selling the idea that the economy is de-dollarising.

Yet, while making these assertions, business leaders, government departments and consumers are reverting to the greenback or are moving towards doing so as the local currency, Zimdollar, continues to weaken as a store of value.

For a while now, many businesses have been offering US dollar pricing. But recently Mangudya said more fuel operators selling in foreign currency would not jeopardize the de-dollarisation process. Yet fuel remains one of the biggest cost drivers for businesses and consumers, often affecting prices thus adding to inflation in any economy.

Despite this, both Ncube and Mangudya still seem to think the economy is de-dollarising.

So, the question then becomes: Why are they acting differently from reality?

Applying the Holmes theory, one can conclude that both officials may just be holding posts but there is an invisible hand on the tiller.

What they said
In a statement in May 2016, Mangudya was quoted dismissing the return of the ZWL also known as Zimdollar.

“The RBZ would like to assure the public that such rumours are unfounded. The multi-currency is here to stay. The rumours should be dismissed with the contempt that they deserve.”
Why did he dismiss the return of the ZWL?

“There is nothing like the return of the Zimbabwe dollar as the country shall continue to use the multi-currency system. We have assured the public before and we would like to continue to do so that the country’s economic fundamentals do not support the return to the ZWL,” he said.

On October 9, 2016, Mangudya is quoted in a report which appeared in a State-controlled weekly saying: “We can’t just say the Zimbabwe dollar has returned when we haven’t achieved the macro-economic fundamentals or conditions that allow us to use our currency. Key economic fundamentals or conditions for the return of the local currency involve balancing the export bill against the import bill for over a year.”

He added: “This means the economy has the capacity and ability to generate foreign exchange to meet its domestic and foreign requirements, development and promotion of foreign exchange revenue streams. Without this, there is no way we are going to return to the Zimbabwe dollar. If government has a balanced and sustainable budget, that way we will be able to return to our local currency.”

In August 2018, a month before becoming the Treasury boss, Ncube was quoted as saying:

“I was one of the people who were of the idea that Zimbabwe should adopt the rand and join the Rand Monetary Union for a seven to 10-year period. This is because South Africa accounts for 80% of Zimbabwe’s trade. So clearly you want a currency that is linked to your largest trading partner, but I don’t think I want to argue that now because things have moved on and we are at a new juncture,” he said, speaking to local media house, Zhou Media.

“What I would argue now is that we remove the bond note currency because it is becoming a surrogate currency to the US dollar without the macro-economic credibility to support it. The bond note currency is bad money and we know that in economics, bad money drives out good money.

“It’s not surprising that the US dollars are now in short supply because people are not banking them. So, the immediate course of action is to remove the bond notes and then let the US dollar become the core currency but over time we have to bring back Zimbabwe’s domestic currency. That’s what will deal with liquidity issues in a big way.”

Ncube announced the reintroduction of the Zimdollar 10 months later in June 2019.

What macroeconomic stability?

It was clear that Mangudya and Ncube understood one thing, there needed to be favourable macroeconomic indicators in place. But the Zimdollar was reintroduced without the critical macroeconomic support.

Inflation started to gallop, reaching 176% in June 2019. As panic set in, Ncube banned the Zimbabwe National Statistics Agency from releasing annualised inflation figures.

Prices were also rising and, in some cases, daily as businesses started to hedge against higher inflation, currency depreciation, higher wages and transport cost, among others.

The vicious cycle was gathering speed.

By mid-year, the World Bank had already flagged a slowdown in economic growth and a gross domestic product contraction of 3% for the year.

National income was also declining due to a slowdown in the purchasing power parity as consumers were prioritising their budgets amid shrinking disposable income and eroding wages.

Finally, unemployment was increasing as businesses adopted cost-cutting measures to militate against the harsh economic environment. A look into several financial reports from companies alluded to that fact.

So, why would the ZWL be introduced despite the macroeconomic climate remaining unstable?

So why the Zimdollar?

If we apply the Holmes theory, the only thing which makes sense is that Treasury and the RBZ are not being run independently, because if both Mangudya and Ncube understood that the macroeconomic climate was not conducive for a local currency, they would not have brought back the Zimdollar so quickly.

These two gentlemen are educated and experienced enough to understand the import of such a move and in their sober minds, would clearly not sanction such a risky move.

That they did means that someone is overriding their common sense. And that someone is driven by greed, corruption and opportunities for arbitrages the chaos would foment.

Early this month, American global policy think tank, the Rand Corporation noted of Zimbabwe’s economy: “Due to a highly cartelised and patronage-based economy, politics and economics are inseparable in Zimbabwe.”

So fiscal and monetary authorities find their hands tied, leaving the country at the mercy of special interest groups that pull the political strings.

Various office bearers of Zimbabwe’s key institutions, including Prosecutor-General Kumbirai Hodzi, have variously referred to such interests as sophisticated cartels that have permeated public institutions and can bend key policy decisions to their whim.

Impeccable sources told NewsDay Business last week that monetary and fiscal authorities were at the mercy of the “political economy” which was controlling key decision making.

“There is what is called the political economy. I think you must understand that that is what controls our decision making. They (fiscal and monetary authorities) know what needs to be done but the powers-that-be are the ones controlling things,” one source said.

The result is that consideration is given to the special political interests at the expense of the economy, the country and its people. In Zimbabwe’s political speak, the cartels are in charge.